Mumbai/Bengaluru: A vast bounty of land has just opened up for development in Mumbai, expanding the scope for housing in the island city and its suburbs.

Mumbai’s Development Plan 2034, unveiled by the Maharashtra government on Wednesday, raises the permissible limit of residential construction or FSI (floor space index) in south and central Mumbai to 3 from the earlier 1.33. This basically means residential skyscrapers can go taller in smaller-sized plots in the heart of the city, where property currently costs Rs20,000-40,000 a sq. ft.

The government has also raised residential FSI for suburbs to 2.5 from 2. For other commercial real estate, FSI has been raised from 1.33 in the island city to 5 and from 2.5 in the suburbs to 5.

FSI is the ratio of a building’s total floor area to the area of the plot.

“Unlocking of these lands may help in rationalising the property prices to an extent. Besides, increasing FSI (floor space index) may also some put pressure on the city’s prices. However, the rationalisation is possible only if the government does not put high premium prices for the FSI," said Pankaj Kapoor, managing director, Liases Foras Real Estate Rating and Research Pvt. Ltd.

Graphic: Ajai Negi/Mint
Graphic: Ajai Negi/Mint

The new Development Plan 2034 has unlocked 3700 hectares of land particularly in the outskirts of the city, of which 2400 hectares have been allocated for affordable housing in a move that aligns with the central government’s “Housing for all by 2022" mission. Through unlocking land, the government targets to build 1 million affordable houses and create around 8 million direct and indirect jobs in the construction and real estate sectors.

This also throws up a big redevelopment opportunity for the government and the developers to monetise old, dilapidated buildings and housing societies in south-central Mumbai.

It is the first time in the history of Mumbai that the government has proposed to unlock such large tracts of land at one go, said Ashutosh Limaye, head research at property advisory JLL India. By specifying the purpose of the land -- affordable housing - the DP has addressed the need for bringing more homes for the low income group and fits well with the Prime Minister’s mission for housing for all, he said.

Saurabh Mehrotra, director at property advisory Knight Frank India said the infusion of more developable land may bring down land value. However, this is subject to enforcement by the government that those land are being used for improving the housing stock. “In the absence of any such enforcement, instead of those land being brought into the market for development and continues to sit in hands of investors and land owners, it doesn’t really affect the land market," he said.

However, several developers and land planners were sceptical of a smooth execution of the new DP as infrastructure remains a key challenge in the city.

Urban planners argued that unabated real estate activity, even if affordable, has to be rightly balanced with adequate infrastructure.

According to Sulaxana Mahajan, former urban planner with Mumbai Transformation Support Unit, solving transportation issues would be the main priority.

“If transport fails, both housing and commercial real estate activity will fail. Even if you do not improve its public transport, it will still add to the mess. So, everything has to go hand in hand with transportation planning. Without that, only land use planning will be a failure," she said.

“One of the positives is that they have not encroached on any of the open spaces. The biggest impact would be that a lot of affordable housing will come in, which is the prime need. The concern is this may take time to execute because there is too many changes the government has been making," said Boman Irani, chairman and managing director, Rustomjee Group.

In a city where land transactions have significantly dropped in the last two years, the new plan is likely to give them a boost and improve housing stock in the long term, even as infrastructure remains a challenge. Though land valuations may see a slight correction in the long term, particularly in the outskirts due to the increased supply, property prices may not see any change as development costs are still high in the city.

“Increased supply will definitely impact the overall valuation, but the overall cost may remain the same as development charges and premiums are at its peak in the city," said a land transaction adviser with a consultancy firm, who did not want to be identified.